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TEAM CANCADO
FOREIGN DIRECT INVESTMENT MOOT COMPETITION Stockholm, 8-11 November 2018
IN THE MATTER OF AN ARBITRATION UNDER THE 2017 ARBITRATION RULES OF THE ARBITRATION INSTITUTE OF THE STOCKHOLM CHAMBER OF COMMERCE
-between-
FENOSCADIA LIMITED Claimant
- and –
THE REPUBLIC OF KRONOS Respondent
MEMORIAL FOR RESPONDENT
SCC Case No. V 2018/003858
i
TABLE OF CONTENTS TABLE OF CONTENTS .......................................................................................................................................... iLIST OF AUTHORITIES ....................................................................................................................................... iiiLIST OF LEGAL SOURCES .................................................................................................................................. vLIST OF ABBREVIATIONS ................................................................................................................................ xiiPART ONE: STATEMENT OF FACTS ................................................................................................................. 1
OVERVIEW ......................................................................................................................................................... 1BACKGROUND .................................................................................................................................................. 1
PART TWO: SUMMARY OF ARGUMENTS ....................................................................................................... 4PART THREE: RESPONDENT’S SUBMISSIONS ............................................................................................... 5
ISSUE 1: THE TRIBUNAL DOES NOT HAVE JURISDICTION OVER THIS DISPUTE ............................. 5I. Jurisdiction Ratione Personae: Fenoscadia Limited is not a covered investor due to its Kronian nationality .......................................................................................................................................................................... 5II. The jurisdiction Ratione Materiae requirement is not met by Fenoscadia Limited .................................... 7III. Conclusion .................................................................................................................................................. 8
ISSUE 2: THIS DISPUTE IS INADMISSIBLE BEFORE THE SCC ................................................................ 9I. Both claims have the same fundamental basis .............................................................................................. 9II. The triple identity test renders Claimant’s claim inadmissible ................................................................. 10
A. Identity of Parties has been established ................................................................................................. 11B. Identity of object has been established .................................................................................................. 11C. Identity of cause of action has been established .................................................................................... 11D. Conclusion ............................................................................................................................................. 12
III. Claimant’s choice of forum is final .......................................................................................................... 12IV. Conclusion ................................................................................................................................................ 13
ISSUE 3: THIS DISPUTE IS NOT MERITORIOUS ....................................................................................... 14I. Respondent’s conduct does not amount to expropriation under Article 7 of the BIT ................................ 14
A. There has been no direct expropriation ................................................................................................. 14B. There has been no indirect expropriation .............................................................................................. 15
1. The ‘police powers’ doctrine should be adopted by this Tribunal, instead of the ‘sole effects’ doctrine ................................................................................................................................................... 152 Under the radical police powers doctrine, there has been no indirect expropriation .......................... 16
2.1 The Decree is a bona fide measure ............................................................................................... 172.1.1 There is a vital interest of the public at stake ........................................................................ 172.1.2 These interests constitute the core of the Decree .................................................................. 172.1.3 The Study, incentivising the realisation of these objectives, is scientifically sound ............. 182.1.4 Respondent was entitled to implement the Decree for public purposes in light of the 1992 Convention ..................................................................................................................................... 18
2.2 The Decree was enacted in a non-discriminatory manner ........................................................... 193. Under the moderate ‘police powers’ doctrine, there has been no indirect expropriation .................. 20
3.1 The measure adopted by the State was reasonably connected to the objective it pursued ........... 203.2 The measure adopted was the least restrictive means of achieving the State’s aim .................... 213.3 The effects of the measure were proportionate in relation to the interests involved .................... 22
4. Conclusion .......................................................................................................................................... 23
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C. Any alleged expropriation is lawful ...................................................................................................... 231. Respondent is not liable to pay compensation ................................................................................... 232. Respondent’s conduct is for a public purpose .................................................................................... 243. Due process of law requirements have been abided by ...................................................................... 254. Non-discrimination requirements have been abided by ..................................................................... 255. Conclusion .......................................................................................................................................... 26
D. Respondent can justify its actions ......................................................................................................... 261. The standard in Article 10(1)(a) of the BIT is met ............................................................................. 272. The standard in Article 10(1)(c) of the BIT is met ............................................................................. 273. The nexus requirement in Article 10 of the BIT is satisfied .............................................................. 28
3.1 The Decree is apt to make a contribution to the achievement of the policy objectives ............... 283.2 The values at stake are vital ......................................................................................................... 293.3. The Decree was the least restrictive means of achieving the police objectives .......................... 29
4. The chapeau in Article 10 of the BIT is met ...................................................................................... 294.1 Respondent’s actions were not arbitrary or unjustifiable ............................................................. 294.2 There has been no disguised restriction on investment ................................................................ 30
E. Conclusion ............................................................................................................................................. 31II. Claimant cannot raise additional claims .................................................................................................... 31III. There is no breach of Article 6 of the BIT ............................................................................................... 31
A. The MST obligation is synonymous with the FET standard ................................................................. 32B. Respondent has not breached the MST, by any definition of the standard ........................................... 33
1. Respondent has not breached the MST obligation per Neer v. Mexico ............................................. 332. Respondent has not breached the MST under a more expansive standard ........................................ 34
IV. Respondent has not violated the FET standard by frustrating legitimate expectations ........................... 35A. Respondent did not give Claimant any specific assurances .................................................................. 36B. There has been no total alteration of the legal framework for investment ............................................ 37
PART FOUR: RESPONDENT’S COUNTERCLAIM .......................................................................................... 38ISSUE 1: RESPONDENT’S COUNTERCLAIM IS ADMISSIBLE BEFORE THE SCC .............................. 38
I. Procedurally, Respondent’s counterclaim is admissible ............................................................................. 38II. Respondent’s counterclaim may be brought under Article 11 of the BIT ................................................. 39
A. The scope of Article 11 of the BIT is wide enough to include counterclaims ..................................... 39B. The counterclaim is not barred by Article 11(2) of the BIT .................................................................. 39C. The counterclaim is not barred by Article 11(3) of the BIT .................................................................. 40
III. Conclusion ................................................................................................................................................ 40ISSUE 2: RESPONDENT’S COUNTERCLAIM IS MERITORIOUS ............................................................. 41
I. Claimant has failed to compensate for environmental damage it caused ................................................... 41II. Conclusion ................................................................................................................................................. 42
PRAYERS FOR RELIEF ....................................................................................................................................... 43
iii
LIST OF AUTHORITIES
ABBREVIATION FULL CITATION
BOOKS
Blackaby Nigel Blackaby et al, Redfern and Hunter on International Arbitration (6th edn, OUP 2015).
Brownlie Ian Brownlie, Principles of Public International Law (6th edn, OUP 2003).
Dolzer and Schreuer Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law, (2nd edn, OUP 2012).
Evans Malcolm Evans, International Law, (4th edn, OUP 2014).
Montt Santiago Montt, State Liability in Investment Treaty Arbitration: Global Constitutional and Administrative Law
in the BIT Generation, (1st edn, Hart Publishing 2009).
Newcombe and Paradell Andrew Newcombe and Lluís Paradell, Law and Practice of Investment Treaties: Standards of Treatment, (1st edn,
Kluwer Law International 2009).
Sornarajah Muthucumaraswamy Sornarajah, Resistance and Change in the International Law on Foreign Investment, (1st edn,
CUP 2015).
Subedi Surya Subedi, ‘International Investment Law’ in Malcolm Evans (ed), International Law, (OUP 2014).
JOURNALS
Martinez-Fraga and Samra
Pedro Martinez-Fraga and Harout Samra, ‘The Role of Precedent in Defining Res Judicata in Investor-State
Arbitration’ [2012] 32 Nw J Int'l L & Bus 419.
iv
Mitchell Andrew Mitchell, James Munro and Tania Voon, ‘Importing WTO General Exceptions into International
Investment Agreements: Proportionality, Myths and Risks’ [2018] Yearbook on International Investment Law and
Policy 1.
Mostafa Ben Mostafa, ‘The Sole Effects Doctrine, Police Powers and Indirect Expropriation under International Law’ [2008] 15 Australian International Law Journal 267.
v
LIST OF LEGAL SOURCES
ABBREVIATION FULL CITATION
STATUTES AND TREATIES
China – Peru FTA Free Trade Agreement between the Government of the People’s Republic of China and the Government of the Republic of Peru, Apr.
28, 2009.
GATT General Agreement on Tariffs and Trade, Apr. 10, 1947 TIAS 1700; 55 UNTS 194.
ICJ Statute United Nations, Statute of the International Court of Justice, Apr. 18, 1946.
ILC Articles International Law Commission, Articles on State Responsibility for Internationally Wrongful Acts (including official Commentary),
Yearbook of the International Law Commission 2001, Vol. II (Part 2).
NAFTA North American Free Trade Agreement, Dec. 17, 1992, 32 Int’l Legal Material 289 (1993).
New Zealand – Malaysia FTA
New Zealand – Malaysia Free Trade Agreement, Oct. 26, 2009.
VCLT Vienna Convention on the Law of Treaties, May 23, 1969 1155 UNTS 331.
ARBITRAL DECISIONS
ADC v. Hungary ADC Affiliate Limited and ADC & ADMC Management Limited v. The Republic of Hungary, ICSID Case No. ARB/03/16, Award of the
Tribunal, (Oct. 2, 2006).
vi
Alpha v. Ukraine Alpha Projektholding GmbH v. Ukraine, ICSID Case No. ARB/07/16, Award, (Nov. 8, 2010).
Ampal v. Egypt Ampal-American Israel Corporation and others v. Arab Republic of Egypt, ICSID Case No. ARB/12/11, Decision on Jurisdiction, (Feb. 1,
2016).
Apotex v. USA Apotex Holdings Inc. and Apotex Inc. v. United States of America, ICSID Case No. ARB(AF)/12/1, Award, (Aug. 25, 2014).
Autopista v. Venezuela Autopista Concesionada de Venezuela, C.A. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/00/5, Decision on Jurisdiction,
(Sept. 27, 2001).
Azurix v. Argentina Azurix Corp. v. The Argentine Republic, ICSID Case No. ARB/01/12, Award, (July 14, 2006).
Bear Creek v. Peru Bear Creek Mining Corporation v. Republic of Peru, ICSID Case No. ARB/14/2, Award, (Nov. 30, 2017).
BG Group v. Argentina BG Group Plc. v. The Republic of Argentina, UNCITRAL, Final Award, (Dec. 24, 2007).
Biloune v. Ghana Biloune and Marine Drive Complex Ltd v. Ghana Investments Centre and the Government of Ghana, UNCITRAL, Award, (June 30, 1990).
Biwater Gauff v. Tanzania
Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Award, (July 24, 2008).
Burlington v. Ecuador Burlington Resources Inc. v. Republic of Ecuador, ICSID Case No. ARB/08/5, Decision on Ecuador's Counterclaims, (Feb. 7, 2017).
vii
Busta v. Czech Republic
Ivan Peter Busta and James Peter Busta v. Czech Republic, SCC Case No. V 2015/014, Final Award, (March 10, 2017).
CMS v. Argentina CMS Gas Transmission Co. v. Republic of Argentina, ICSID Case No. ARB/01/8, Award, (May 12, 2005).
Continental v. Argentina
Continental Casualty Company v. The Argentine Republic, ICSID Case No. ARB/03/9, Award, (Sept. 5, 2008).
Crystallex v. Venezuela Crystallex International Corporation v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/11/2, Award, (April 4, 2016).
Deutsche Bank v. Sri Lanka
Deutsche Bank AG v. Democratic Socialist Republic of Sri Lanka, ICSID Case No . ARB/09/2, Award, (Oct. 31, 2012).
DR Holdings v. Dominican Republic
Société Générale in respect of DR Energy Holdings Limited and Empresa Distribuidora de Electricidad del Este, S.A. v. The
Dominican Republic, UNCITRAL, LCIA Case No. UN 7927, Award on Preliminary Objections to Jurisdiction, (Sept. 19, 2008).
EDF v. Romania EDF (Services) Limited v. Romania, ICSID Case No. ARB/05/13, Award, (Oct. 8, 2009).
El Paso v. Argentina El Paso Energy International Company v. The Argentine Republic, ICSID Case No. ARB/03/15, Award, (Oct. 31, 2011).
Feldman v. Mexico Marvin Roy Feldman Karpa v. United Mexican States, ICSID Case No. ARB(AF)/99/1, Award, (Dec. 16, 2002).
Goetz v. Burundi Goetz and Others v. Republic of Burundi, ICSID Case No. ARB/95/3, Decision on Liability, (Feb. 10, 1999).
H & H Enterprises v. Egypt
H&H Enterprises Investments, Inc. v. Arab Republic of Egypt, ICSID Case No. ARB 09/15, Award, (May 6, 2014).
viii
Impregilo v. Argentina Impregilo S.p.A. v. Argentine Republic, ICSID Case No. ARB/07/17, Award, (June 21, 2011).
LG&E v. Argentina LG&E Energy Corp., LG&E Capital Corp., and LG&E International, Inc. v. Argentine Republic, ICSID Case No ARB/02/1, Decision on
Liability, (Oct. 3, 2006).
Methanex v. USA Methanex Corporation v. United States of America, UNCITRAL, Final Award of the Tribunal on Jurisdiction and Merits, (Aug. 3,
2005).
Mondev v. USA Mondev International Ltd. v. United States of America, ICSID Case No. ARB(AF)/99/2, Award, (Oct. 11, 2002).
Orascom v. Algeria Orascom TMT Investments S.à r.l. v. People's Democratic Republic of Algeria, ICSID Case No. ARB/12/35, Final Award, (May 31, 2017).
Pantechniki v. Albania Pantechniki S.A. Contractors & Engineers (Greece) v. The Republic of Albania, ICSID Case No. ARB/07/21, Award, (July 30, 2009).
Pope v. Talbot Pope & Talbot Inc. v. The Government of Canada, UNCITRAL, Award in Respect of Damages, (May 31, 2002).
Rompetrol v. Romania The Rompetrol Group N.V. v. Romania, ICSID Case No. ARB/06/3, Decision on Respondent’s Preliminary Objections on Jurisdiction and
Admissibility, (Apr. 18, 2008).
Saluka v. Czech Republic
Saluka Investments BV v. Czech Republic, UNCITRAL, Partial Award, (March 17, 2006).
SOABI v. Senegal Société Ouest Africaine des Bétons Industriels v. Senegal, ICSID Case No. ARB/ 82/1, Decision on Jurisdiction, (Aug. 1, 1984).
Tecmed v. Mexico Técnicas Medioambientales Tecmed S.A. v. The United Mexican States, ICSID Case No. ARB(AF)/00/2, Award, (May 29, 2003).
ix
Tokios Tokelés v. Ukraine (Dissenting
Opinion)
Tokios Tokelés v. Ukraine, ICSID Case No. ARB/02/18, Dissenting Opinion (Chairman Prosper Weil), (Apr. 29, 2004).
Toto v. Lebanon (Decision on Jurisdiction)
Toto Costruzioni Generali S.p.A. v. Republic of Lebanon, ICSID Case No. ARB/07/12, Decision on Jurisdiction, (Sept. 11, 2009).
Urbaser v. Argentina Urbaser S.A. and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v. The Argentine Republic, ICSID Case No.
ARB/07/26, Award, (Dec. 8, 2016).
Vivendi v. Argentina (I) (Decision on Annulment)
Compañiá de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No. ARB/97/3,
Decision on Annulment, (July 3, 2002).
Vivendi v. Argentina (II)
Suez, Sociedad General de Aguas de Barcelona, S.A. and Vivendi Universal, S.A. v. Argentine Republic, ICSID Case No. ARB/03/19,
Decision on Jurisdiction, (Aug 3, 2006).
Waste Management v. Mexico
Waste Management, Inc. v. United Mexican States ("Number 2"), ICSID Case No. ARB(AF)/00/3, Award, (Apr. 30, 2004).
CLAIMS TRIBUNAL CASES
Neer v. Mexico Neer v. Mexico, US–Mexico General Claims Commission, Opinion, (March 14, 1927).
Sedco v. Iran Sedco Inc v National Iranian Oil Co, Iran–US Claims Tribunal Case No. 309–129–3, Award, (March 27, 1986).
Too v. Greater Modesto Emanuel Too v Greater Modesto Insurance Associates and the United States of America, Iran–US Claims Tribunal Case No. 460-880-2,
Award, (Dec. 29, 1989).
Woodruff United States (Henry Woodruff) v United States of Venezuela, US–Venezuela Claims Commission, Award, (Feb. 17, 1903).
x
INTERNATIONAL COURT CASES
Case Concerning Armed Activities on the
Territory of the Congo (Democratic Republic of
the Congo v. Uganda)
Case Concerning Armed Activities on the Territory of the Congo (Democratic Republic of the Congo v. Uganda), Judgment 2005 ICJ
Reports (December 19).
Case Concerning Military And
Paramilitary Activities In And Against
Nicaragua (Nicaragua v. United States of
America)
Case Concerning Military And Paramilitary Activities In And Against Nicaragua (Nicaragua v. United States of America), Merits, Judgment
1986 ICJ Reports 14 (June 27).
Case Concerning The Arbitral Award Of 31 July 1989 (Guinea-Bissau v. Senegal)
Case Concerning The Arbitral Award Of 31 July 1989 (Guinea-Bissau v. Senegal), Judgment 1991 ICJ Reports (November 12).
Pulp Mills on the River Uruguay (Argentina v.
Uruguay)
Case Concerning Pulp Mills On The River Uruguay (Argentina v. Uruguay), Judgment 2010 ICJ Reports (April 20).
The Factory at Chorzów (Germany v.
Poland)
Case Concerning The Factory at Chorzów (Germany v. Poland), Decision on Jurisdiction 1927 PCIJ Series A No 17 (July 26).
WORLD TRADE LAW CASES
Brazil – Retreaded Tyres
Panel Report, Brazil – Measures Affecting Imports of Retreaded Tyres, WT/DS332/R, adopted 17 December 2007, as modified by Appellate Body Report WT/DS332/AB/R, DSR 2007:V, p. 1649.
China – Publications and Audiovisual
Products
Appellate Body Report, China — Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual
Entertainment Products, adopted 21 December 2009, WT/DS363/AB/R.
xi
China – Raw Materials Panel Reports, China – Measures Related to the Exportation of Various Raw Materials, WT/DS394/R, Add.1 and Corr.1 /
WT/DS395/R, Add.1 and Corr.1 / WT/DS398/R, Add.1 and Corr.1, adopted 22 February 2012, as modified by Appellate Body Reports
WT/DS394/AB/R / WT/DS395/AB/R / WT/DS398/AB/R, DSR 2012:VII, p. 3501.
EC – Hormones Panel Reports, EC Measures Concerning Meat and Meat Products (Hormones), WT/DS48/R/CAN (Canada) / WT/DS26/R/USA (US), adopted 13 February 1998, as modified by Appellate Body Report
WT/DS26/AB/R, WT/DS48/AB/R, DSR 1998:II, p. 235 / DSR 1998:II, p. 699.
US – Gambling Appellate Body Report, United States – Measures Affecting the Cross-Border Supply of Gambling and Betting Services,
WT/DS285/AB/R, adopted 20 April 2005, DSR 2005:XII, p. 5663 (and Corr.1, DSR 2006:XII, p. 5475).
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LIST OF ABBREVIATIONS
ABBREVIATION FULL MEANING
1992 Convention Convention on the Protection and Use of Transboundary Watercourses and
International Lakes 1992
Agreement Concession Agreement (2000)
BIT Bilateral Investment Treaty
CVD Cardiovascular Disease
Decree Presidential Decree No. 2424 (2016)
FET Fair and Equitable Treatment
FITR Fork in the Road
FPS Full Protection and Security
ICJ International Court of Justice
ICSID International Centre for Settlement of Investment Disputes
KEA 2015 Kronian Environmental Act
L Line
MST Minimum Standard of Treatment
NAFTA FTC North American Free Trade Agreement Free Trade Commission
P Page
SCC Stockholm Chamber of Commerce
Study Kronian Federal University Study (2016)
UNCITRAL United Nations Commission on International Trade Law
WTO World Trade Organisation
1
PART ONE: STATEMENT OF FACTS
OVERVIEW
1. This dispute is the result of the Kronian Government’s (“Respondent’s”) alleged interference
with mining operations in Respondent’s territory. Fenoscadia Limited (“Claimant”) is a
limited liability company with the majority of its business dealings occuring in the Republic
of Kronos (“Kronos”). Claimant has exploited lindoro in Kronos since August 2008, by
virtue of a license granted by Respondent in accordance with the Concession Agreement
(“Agreement”) signed by both parties on 1 June 2000. On 7 September 2016, the Kronian
government, vis-à-vis Presidential Decree No. 2424 (“Decree”), revoked Claimant’s license
and terminated the Agreement due to compelling evidence of harm caused to the environment
and to the people of Kronos. In light of this, Respondent’s actions do not amount to a breach
of any its obligations under the Agreement Between the Republic of Ticadia and the Republic
of Kronos for the Promotion and Reciprocal Protection of Investments (“the BIT”).
BACKGROUND
2. Respondent welcomed the turn of the millennium as an opportunity to implement legislation
to preserve the environment. In order to achieve this objective, Respondent turned to
Claimant. Claimant is a limited liability company incorporated under the laws of the Republic
of Ticadia (“Ticadia”) in 1993, renowned globally for its expertise in the exploration and
exploitation of rare earth metals.1 Claimant has gradually integrated itself within Kronos,
especially given its decision to concentrate almost all its mining activities in Kronos,
effectively shutting down its operations in Ticadia, and to have the majority of its Board of
Directors comprised of Kronian nationals. The latter is much appreciated by Respondent as
the Kronian shareholders, which exert considerable influence over Claimant’s decision-
making, have immense experience in the mining industry.2 In Respondent’s view, greater
expertise equals greater potential to preserve the environment.
3. In fact, expertise was one of three factors taken into account when Respondent granted
1 Statement of Uncontested Facts (SUF), P32 L895-897. 2 SUF, P33 L905-908.
2
Claimant the exclusive right to exploit lindoro in an area of 1,071,000 m2 nestled in
Respondent’s inner territory (“Site”) for eighty years.3 At the time of the execution of the
Agreement, Respondent did not have a framework governing the mining industry.4 The
Agreement therefore represents one of many steps taken by Respondent in an attempt to
formulate comprehensive regulation intended to safeguard the environment. In fact, as of
2011, Respondent’s Government closely followed the environmental footprint of Claimant’s
activities in its territory. However, in the absence of a statute conferring them authority to
impose sanctions, inspectors were limited to collecting information.5 In Respondent’s opinion,
this needed to change.
4. As a result, Respondent’s Government submitted a draft bill to the Kronian House of
Representatives to minimize the externalities of environmentally sensitive activities in
Respondent’s territory. This resulted in the Kronian Environmental Act (“KEA”) being
passed on 12 June 2015. The KEA is based on obligations and definitions set out in the
Protocol on Water and Health to the 1992 Convention on the Protection and Use of
Transboundary Watercourses and International Lakes (“1992 Convention”) - international
treaty that is geared towards protecting the environment.6 This includes, for example, a
requirement for miners to protect bodies of water where extraction takes place. Failure to
comply with such obligations leads to severe penalties, including fines, the immediate
withdrawal of licenses and the forfeiture of facilities, and the obligation to remedy the
environmental damage.7 To ensure the effective enactment of these provisions, Respondent
was able to pass the KEA quickly whilst still abiding by the Kronian Constitution, seeing as
the Speaker of The House waived the public hearing requirement in a decision entirely within
its constitutional authority.8
5. Respondent should not be faulted for its attempts to preserve the environment. Rather, its
efforts are commendable. It has even gone so far as to create the Ministry for Environmental
Matters, responsible for the formulation and enforcement of environment-related policies.9 In
3 SUF, P33 L909-914. 4 SUFs, P33 L909-914. 5 SUF, P35 L976-978. 6 Evans, p 683. 7 SUF, P34-35 L963-965. 8 SUF, P35 L966-971. 9 SUF, P35 L976-978.
3
October 2015, the Ministry released data indicating that the volume of toxic wastes found in
rivers sharply increased since 2010. This called upon the Kronian Federal University to
establish whether said potential increase was caused by Claimant’s activities (“Study”). Just
like at least ten different studies conducted by top-tier universities and independent
researchers across the globe,10 the Study concluded that Claimant’s activities are likely to
have caused a 45% increase in cardiovascular disease (“CVD”) among Respondent’s
population since 2011. It also demonstrates that Claimant has failed to avoid contamination of
the Rhea River with toxic waste. Accordingly, to protect its environment, Respondent,
through the Decree, revoked Claimant’s operating licenses and terminated the Agreement.11
This was a reasonable precautionary measure taken by Respondent, especially seeing as
Claimant has not been able to adduce evidence of other mining operators’ tailings releasing
graspel,12and because Claimant has never adopted any corporate social responsibility
standards addressing issues like the environment in its internal policies.13 Respondent’s
actions are not just respectable; they also do not in any way breach the BIT.
10 SUF, P36 L1000-1004. 11 Answer to Request for Arbitration, P16 L430-432. 12 Procedural Order (PO) No. 2, P56 L1541-1545. 13 PO No. 2, P57 L1586-1587.
4
PART TWO: SUMMARY OF ARGUMENTS
6. JURISDICTION. The SCC does not have jurisdiction over the dispute. First, the jurisdiction
ratione personae requirement is not met since Fenoscadia Limited is not a covered investor
due to its Kronian nationality. Second, the jurisdiction ratione materiae requirement is not
met by Claimant since Fenoscadia Limited has no covered investment.
7. ADMISSIBILITY. The claim brought by Fenoscadia Limited in the SCC is not admissible.
This is because Claimant submitted a claim to the Kronian domestic courts which is identical
to the claim before the SCC. The latter is therefore inadmissible under the Fork in the Road
clause in Article 11 of the BIT for two reasons. First, the claim before the domestic Kronian
Courts and the claim brought before the SCC share the same fundamental basis or,
alternatively, are identical in terms of parties, object, and cause of action. Second, a choice of
forum is final. Given that Claimant already brought its claim before the Kronian domestic
court, the claim is inadmissible before the SCC.
8. MERITS. This dispute is not meritorious. First, Respondent did not directly expropriate
Claimant’s property, nor do its actions constitute an indirect expropriation under either the
moderate or the radical ‘police powers’ doctrines. Any alleged expropriation is both lawful
and justifiable. Second, Respondent did not violate its obligation under Article 6 of the BIT as
it acted in accordance with the minimum standard of treatment and provided fair and equitable
treatment.
9. COUNTERCLAIM. Respondent’s counterclaim is admissible and meritorious. First,
Respondent’s counterclaim is admissible under investment arbitration procedural rules, as
well as Article 11 of the BIT. Second, Respondent’s counterclaim is meritorious as Claimant
is responsible for environmental degradation and health problems in Kronos, and has failed to
compensate for same, in direct violation of Article 9(2) of the BIT.
5
PART THREE: RESPONDENT’S SUBMISSIONS
10. Respondent’s submissions will address three broad issues. The first is that the SCC does not
have jurisdiction over this dispute. Second, the claim is inadmissible before this Tribunal.
Third, Claimant’s claim is not meritorious.
11. As a preliminary matter, the applicable law to the substantive issues of the case is the
Ticadia–Kronos BIT, which is interpreted pursuant to Articles 31 and 32 of the Vienna
Convention on the Law of Treaties (“VCLT”), which codifies customary international law as
regards treaty interpretation.14
ISSUE 1: THE TRIBUNAL DOES NOT HAVE JURISDICTION OVER THIS DISPUTE
12. Kronos and Ticadia agreed upon the language of the dispute settlement clause, Article 11(1)
of the BIT, which provides that Respondent consents to binding arbitration on ‘a dispute
between a Contracting Party and an investor of the other Contracting arising out of or relating
to an investment…’15 The Parties clearly envisioned ratione materiae and ratione personae
requirements to form part of the question of whether a tribunal has jurisdiction over a claim.
In line with this, Respondent submits that the SCC lacks jurisdiction for two reasons. First,
Claimant does not qualify as an ‘investor’ under the BIT (Section I). Second, Claimant does
not have an ‘investment’ under the BIT (Section II).
I. Jurisdiction Ratione Personae: Fenoscadia Limited is not a covered investor due to its
Kronian nationality
13. Respondent submits that Claimant is not a covered investor under the BIT as a result of being
of Kronian nationality. This Tribunal hence lacks jurisdiction.
14. An investor is defined in Article 1(4) of the BIT as ‘an enterprise of a Contracting Party, that
seeks to make, is making, or has made an investment in the other Contracting Party’s
territory.’16
15. The phrase ‘of a Contracting Party’ refers to the investor’s nationality or legal personality.
While this has often been determined by reference to the place of incorporation specific 14 Case Concerning The Arbitral Award Of 31 July 1989 (Guinea-Bissau v. Senegal), para 48. 15 Article 11(1) of the BIT, P44 L1226-1231. 16 Article 1(4) of the BIT, P39 L1093-1097.
6
wording of the treaties at issue, the BIT in this case does not set out a test of nationality.
Hence, Respondent submits that the SCC should not adopt the place of incorporation test that
regards an entity as having the nationality of the State in which it is incorporated, but rather a
robust test which resolves any and all concerns regarding ‘protection shopping’, or Claimant’s
status as a de facto Ticadian investor.
16. The adoption of such a test is called for by Article 31(1) of the VCLT, which requires treaties,
like the BIT at issue, to ‘be interpreted in good faith in accordance with the ordinary meaning
to be given to the terms of the treaty in their context and in the light of its object and
purpose.’17 The object and purpose of the BIT at issue is to ‘promote greater economic
cooperation between them, with respect to investment by nationals and companies of one
Contracting Party in the territory of the other Contracting Party’.18 This should be taken into
consideration by this Tribunal.
17. Hence, Respondent submits that the BIT, through the first recital of the preamble, sheds light
on the importance of a cross-border element in relation to investments. The importance of a
cross-border element prominently featured in the dissenting opinion of Mr Prosper Weil in
Tokios Tokelés, as the dispute concerned a State, the Ukraine, and its own nationals. Allowing
an investment to ensue from such a factual scenario would counter any attempt to promote
greater economic cooperation between countries, but rather foster the economy in one country
alone. Therefore, Mr Prosper Weil concluded that:
‘It is this very same rationale of giving effect to the economic reality over and above the legal structure that should have led the tribunal to decide that an investment made in Ukraine by Ukrainian citizens with Ukrainian capital—albeit through the channel of a Lithuanian corporation—cannot benefit from the protection of the ICSID mechanism and, as a consequence, to deny Tokios ... for the purposes of the Convention, the character of a ‘foreign investor’ in Ukraine.’19
18. In light of this view, and its applicability to the case at hand, Respondent submits that this
Tribunal should adopt the ‘effective control’ test. When applying this test, the nationality of
the shareholders prevails over the nationality of the company in order to correspond to
economic reality.20 Here, it is undisputed that ‘Kronian shareholders [which comprise 35% of
the board] exert considerable influence over Claimant’s decision-making… in relation to the
operation and management of its mining activities in Kronos.’21 Furthermore, the majority of
Claimant’s business is conducted in Kronos, and the board is comprised of primarily Kronian 17 VCLT, Art 31(1). 18 First Recital of the Preamble of the BIT, P38 L1045-1047. 19 Tokios Tokelés v. Ukraine (Dissenting Opinion), para 23. 20 ibid. 21 SUF, P33 L905-908.
7
nationals.22 Therefore, Respondent submits that Kronian nationals effectively control
Claimant’s mining operations. Thus, Fenoscadia Limited is of Kronian nationality.
19. Alternatively, Respondent submits that the more holistic ‘siège social’ test is equally satisfied.
This theory determines the ‘real seat’ of control of the enterprise in order to establish its
nationality.23 On the facts, Claimant is an enterprise that is in all practicality controlled by
Kronian nationals who are both shareholders and board members.24
20. All ties Claimant has with Ticadia are purely formal: Claimant moved all its mining
equipment to Kronos,25 it has shut down all of its business operation in Ticadia,26
concentrating all of its activities, and the implementation of the board’s directives in
Kronos,27 and the CEO does not hold Ticadian nationality.28
21. As a result, Claimant’s real seat or place of control is Kronos. Claimant’s links to Ticadia are
not substantial enough for them to be considered an ‘enterprise of Ticadia’. Thus, Claimant’s
nationality must be deemed to be Kronian. Respondent therefore submits, that Claimant is a
Kronian investor, which is managed by its Kronian board members, and operates in Kronos.
Therefore, Fenoscadia Limited is not a covered investor.
22. In conclusion, Respondent submits that Claimant is a Kronian national, both under the
‘effective control’ and the ‘siège social’ tests. Thus, Claimant does not qualify as a covered
investor.
II. The jurisdiction Ratione Materiae requirement is not met by Fenoscadia Limited
23. Respondent submits that Fenoscadia Limited does not have an investment under Article 1 of
the BIT. This is because Article 1(3) of the BIT requires the investment to be made ‘by an
investor of the other Contracting Party’ in order to fall within the scope of a ‘covered
investment’.29 Respondent submits that Claimant is not from another Contracting Party but is
in truth of Kronian nationality. Respondent vehemently rejects any attempt made by Claimant
to argue the existence of a cross-border element.
24. As explained in Section 1, Claimant’s dealings do not portray a cross-border element. This is 22 SUF, P31 L901. 23 Autopista v. Venezuela, para 107; SOABI v. Senegal, para 29. 24 SUF, P33 L901-902. 25 SUF, P33 L931-933. 26 SUF, P33-34 L931-938. 27 SUF, P33 L931-932 and P34 L936-937. 28 PO No. 2, P56 L1520. 29 Article 1(3) of the BIT, P39 L1088-1092.
8
because Kronian nationals are shareholders of a substantial part of Claimant’s voting shares
and considerable influence over Claimant;30 Claimant delegated the business judgment of the
company to a group of Kronian shareholders;31 Claimant only kept formal ties with Ticadia
such that the alleged enterprise’s nationality factually became Kronian; and its economic
interest and business decisions are solely based on its activities in Kronos.32 Furthermore,
Claimant admits that it transferred ‘almost all its mining activities and resources in Kronos’ in
2010,33 and ‘effectively shut down its mining operations in Ticadia’ such that no foreign
element exists.34
25. Therefore, Respondent submits that Fenoscadia Limited is not from ‘another Contracting
Party’ and hence fails to meet the parameters of a ‘covered investment’ under Article 1(3) of
the BIT.
III. Conclusion
26. Respondent concludes that the SCC does not have jurisdiction over the dispute. Claimant is
not ‘an investor of the other Contracting Party’35 and does not have a ‘covered investment’.36
30 SUF, P32-33 L899-900. 31 SUF, P33 L901-902. 32 SUF, P32-33 L895-908. 33 SUF, P33 L931-932. 34 SUF, P33 L932. 35 Article 1(4) of the BIT, P39 L1093-1097. 36 Article 1(3) of the BIT, P39 L1088-1092.
9
ISSUE 2: THIS DISPUTE IS INADMISSIBLE BEFORE THE SCC
27. Even if this Tribunal finds that it has jurisdiction over the present dispute, Respondent
submits that Claimant’s claim is not admissible. Article 11 of the BIT, the dispute settlement
clause, offers arbitration at the SCC as a last resort for parties to settle disputes. In order for a
claim to be admissible before this Tribunal, Claimant must not have brought its claim before
the domestic courts or any other agreed forum for dispute resolution. Such a clause is known
as a fork in the road (FITR) clause. The dispute settlement clause offers access to domestic
courts as a primary method of resolution for BIT-related disputes, and only provides access to
arbitration should the domestic route remain unused.37
28. Respondent submits that since Claimant submitted a claim to the domestic Kronian court,
Claimant’s claim in arbitration is not admissible. This is for two reasons. First, the claim
before the domestic court and the claim brought before the SCC share the same fundamental
basis (Section I). Alternatively, the claims are identical in terms of parties, object, and cause
(Section II). Second, a choice of forum is final (Section III).
I. Both claims have the same fundamental basis
29. Respondent submits that Claimant’s claim before the domestic court and its claim before the
SCC are identical under the ‘fundamental basis’ test, which assesses if both claims have the
same fundamental basis.38
30. First, Respondent submits that the ‘fundamental basis’ test is more compatible with the BIT.
The FITR clause should be interpreted in light of H & H Enterprises v. Egypt, which
concerned an FITR provision quite similar to Article 11(3) of the Kronos–Ticadia BIT,
namely Article VII 3(a) of the US–Egypt BIT. The article provides access to arbitration if ‘the
national or company concerned has not brought the dispute before the courts of justice or
administrative tribunals or agencies of competent jurisdiction of the Party that is a Party to the
dispute.’39 This is nearly identical to Article 10(3) of the Ticadia–Kronos BIT, which provides
access to arbitration ‘Provided that the national or company concerned has not submitted the
dispute for resolution under (a) or (b) of the second paragraph…. the national or company
concerned may choose to consent in writing to the submission of the dispute for settlement by
37Article 11(3) of the BIT, P44 L1238-1243. 38 H & H Enterprises v. Egypt, para 370; Woodruff, p 222-223; Pantechniki v. Albania, para 67. 39 H & H Enterprises v. Egypt, para 366.
10
binding arbitration under the Arbitration Institute of the Stockholm Chamber of Commerce.’40
Therefore, Respondent submits that the FITR clause be interpreted in line with H & H
Enterprises v. Egypt.
31. Repondant submits that the ‘fundamental basis’ test deems Claimant’s claim before this
Tribunal inadmissible. The ‘fundamental basis’ test requires that, if successful, a Prayer for
Relief grants the same result in both claims, and on the same ‘fundamental basis’.41
32. Applying the first limb of this test to the facts, it is evident that, if successful, both claims
would have the same result, namely, the negation of the alleged harm caused to Claimant by
means of a declaration of unconstitutionality in the domestic courts,42 and damages in
arbitration.43 Furthermore, it has been acknowledged by Claimant that its claim in the
domestic court, should it have been successful, would be relied upon to seek compensation.44
33. As for the Prayers for Relief being on the same fundamental basis, Respondent submits that
both claims rely wholly and only on the results of the Decree and the subsequent KEA. This is
evident as the claim before the domestic court targets the Decree,45 and the Request for
Arbitration singles out both the Decree and the KEA.46
34. Therefore, Respondent concludes that the ‘fundamental basis’ test has been satisfied and
Claimant’s claim lacks admissibility before this Tribunal.
II. The triple identity test renders Claimant’s claim inadmissible
35. Respondent submits that the ‘triple identity test’ should be rejected as it is not compatible
with the BIT. The tribunal in H & H Enterprises v. Egypt rejected the ‘Triple Identity’ test as
the US–Egypt BIT made no reference to it. Furthermore, the tribunal stated that such a test
would hinder the purpose of the FITR clause in question, which is to ensure that the same
dispute is not submitted before multiple forums.47 The tribunal concluded, that instead of
assessing if the causes of action relied upon by both parties are identical, the tribunal should
determine if both claims share the same fundamental basis.48 Respondent submits that due to
the identical nature of both BITs, this reasoning should be followed. 40 Article 11(3) of the BIT, P44 L1238-1243. 41 H & H Enterprises v. Egypt, para 370; Woodruff, p 222-223; Pantechniki v. Albania, para 67. 42 PO No. 2, P56 L1525-1530. 43 Request for Arbitration, P8 L225-23. 44 PO No. 3, P59 L1637-1640. 45 PO No. 2, P56 L1525-1530. 46 Request for Arbitration, P6 L167-181. 47 H & H Enterprises v. Egypt, para 367. 48 H & H Enterprises v. Egypt, para 368.
11
36. Should this Tribunal however choose to apply the ‘triple identity’ test, Claimant’s claim
remains inadmissible before the SCC. In line with the triple identity test, a FITR provision is
binding and can deem a claim inadmissible when there is triple identity, namely that of parties
(Part A), object (Part B), and cause of action (Part C).49
A. Identity of Parties has been established
37. Respondent submits that the parties are indeed the same, namely, Fenoscadia Limited and
Kronos.50
B. Identity of object has been established
38. Respondent submits that the object of the proceedings before Respondent’s court was the
same as that advanced in this arbitral proceeding. The object of a claim refers to the ‘relief
sought’51 or legal benefit the lawsuit seeks to obtain. Claimant not only applied to the Kronian
Federal Court seeking to suspend the effect of the Decree,52 but also sought to declare the
Decree unconstitutional.53 Furthermore, though not amounting to damages in itself, it is
uncontested that such a judgment, if in Claimant's favour, could be relied upon while seeking
compensation for breach of contractual or non-contractual obligations.54 Likewise, the
Request for Arbitration also seeks reparation for the decree in the form of damages.55
Therefore, Respondent submits that the object is identical.
C. Identity of cause of action has been established
39. Respondent submits that the cause of action underlying the claims before the SCC as well as
the claim filed in Respondent’s court are the same – the Decree. Some tribunals deemed there
to be identical causes of action where the ‘fundamental basis of the claim’ in arbitration
matched that of local proceedings.56 Applying the ‘fundamental basis’ approach to the facts at
49 Toto v. Lebanon (Decision on Jurisdiction), para 211; Vivendi v. Argentina (I) (Decision on Annulment), paras 53-55. 50 SUF, P36 L1016-1017. 51 Martinez-Fraga and Samra, 427. 52 SUF, P36 L1015-25. 53 PO No. 2, P56 L1525-1530. 54 PO No. 3, P59 L1637-1640. 55 Request for Arbitration, P8 L225-23. 56 Pantechniki v. Albania, paras 66-68; H & H Enterprises v. Egypt, para 368.
12
hand, Respondent finds that the basis of the matters before the Kronian court and this
Tribunal is the same; both relate to the Decree.57 Respondent therefore submits that the causes
of action are identical.
D. Conclusion
40. In conclusion, Respondent submits that there is triple identity and the claim before the SCC
should be deemed inadmissible.
III. Claimant’s choice of forum is final
41. Respondent submits that the claim is inadmissible before this Tribunal since the choice of
forum which refers to Kronian court is final. Respondent submits that it has been
acknowledged as an agreed fact that Claimant took a claim the to the domestic Kronian courts
in the aftermath of the Decree.58 Respondent submits that this action amounted to Claimant
filing for dispute settlement under Article 11(2) of the BIT. It is further recognised that
Claimant withdrew its claim in front of the domestic court before a verdict was given.59
42. In light of these facts, Respondent contends that the claim before this Tribunal should be
deemed inadmissible. This is because the wording in Article 11(3) of the BIT only allows for
arbitration at the SCC should a claim not be submitted to domestic courts.60 The BIT is
worded in a manner that does not require a judgment, but simply requires a choice, in order to
deem a claim inadmissible. Furthermore, the tribunal in Pantechniki v. Albania suggested that
a claimant’s choice of forum for dispute resolution is final.61 Hence, Respondent submits that
the withdrawal of the claim to domestic courts should hold no relevance. Rather, the domestic
courts should be seen as Claimant’s final choice of dispute settlement.
43. Furthermore, Respondent submits that should the claim be deemed admissible it would
amount to abuse of process. A recent line of cases has expanded the notion of abuse of
process to the pursuit of separate claims for the same investment by companies that belonged
to the same corporate structure but could rely on different treaties due to their varying
57 PO No. 2, P56 L1525-1530; Request for Arbitration, P8 L212-215. 58 SUF, P36 L1016-17. 59 SUF, P36 L1023-1024. 60 Article 11(3) of the BIT, P44 L1238-1243. 61 Pantechniki v. Albania, para 68.
13
nationalities.62 Moreover, Article 7 of the Agreement states that the courts of Kronos have
exclusive jurisdiction once a dispute is submitted in such a forum. Seeing as Claimant already
submitted its dispute to Respondent’s courts, Claimant should not be allowed to practice
forum shopping or engage in any other form of abuse of process through a claim before the
SCC.
44. Respondent’s contends that its submissions are correct from a legal point of view, but also
from a policy perspective. If withdrawing a lawsuit has the effect of setting aside a FITR
clause, such a provision is rendered futile since every investor can simply withdraw its claim
from domestic court whenever it attempts to bring a claim at treaty level.63 This leads
Respondent to the conclusion that Claimant’s motion in Respondent's courts was their final
choice of forum. This form of abuse of process should not be entertained and, therefore,
Respondent submits that the SCC should deem Claimant’s claim inadmissible.
IV. Conclusion
45. In conclusion, Claimant’s claim before the SCC is admissible. This is because the withdrawn
lawsuit before the Kronian national courts amounted to a final choice of forum. Furthermore,
the claim before the Kronian court remains identical to the proceedings before this Tribunal
and is hence inadmissible under the FITR clause in Article 11 of the BIT.
62 Ampal v. Egypt, paras 331-334; Orascom v. Algeria, para 543. 63 Pantechniki v. Albania, para 68.
14
ISSUE 3: THIS DISPUTE IS NOT MERITORIOUS
46. If this Tribunal were to address the merits Respondent submits that: Respondent did not
expropriate Claimant’s alleged investment (Section I), and that Claimant cannot raise
additional breaches (Section II). Even if the Tribunal accepts additional claims, Claimant was
in compliance with the minimum standard of treatment obligation (Section III) and provided
Claimant with fair and equitable treatment (Section IV).
I. Respondent’s conduct does not amount to expropriation under Article 7 of the BIT
47. Respondent submits that it did not violate its obligation under Article 7 of the BIT, which
provides that:
‘[n]either Contracting Party shall nationalize or expropriate a covered investment either directly or indirectly through measures having an effect equivalent to nationalization or expropriation except for a public purpose, in accordance with due process of law, in a non-discriminatory manner and on payment of due compensation…’
48. Respondent neither directly (Part A) nor indirectly (Part B) expropriated Claimant’s
investment. Further, any alleged expropriation is lawful (Part C), and justifiable under Article
10 of the BIT (Part D).
A. There has been no direct expropriation
49. Respondent submits that the Decree, which ordered the confiscation of lindoro, does not
amount to direct expropriation. Direct expropriation refers to ‘an open, deliberate and
unequivocal intent, as reflected in a formal law or decree or physical act, to deprive the owner
of his or her property through the transfer of title or outright seizure.’64
50. First, Respondent submits that the confiscation of lindoro does not amount to direct
expropriation.
51. This is because Respondent did not obtain the lindoro with the intent of depriving Claimant of
its title thereto, thus the conduct does not amount to expropriation. Expropriation or
nationalisation requires an intent to deprive, however, Respondent held the lindoro as security
against compensation owed by Claimant for the negative environmental impact of its
64 UNCTAD, ‘Expropriation: A Sequel, Series on Issues in International Investment Agreements II’ (United Nations, 2012), <http://unctad.org/en/Docs/unctaddiaeia2011d7_en.pdf> accessed 8 August 2018.
15
activities in Kronos.65 This is explicitly stated by the Decree which, in Article 4, features the
words, ‘by way of security of such compensation’.66 This Tribunal should not find that
Respondent confiscated the lindoro with an intent to deprive.
52. Respondent concludes that there has been no direct expropriation such that Article 7 of the
BIT has not been breached.
B. There has been no indirect expropriation
53. Respondent submits that there is no indirect expropriation. Respondent will first elucidate the
approach that should be taken in analysing whether there has been indirect expropriation
(Section 1) and then applying this approach to the facts.
1. The ‘police powers’ doctrine should be adopted by this Tribunal, instead of the ‘sole
effects’ doctrine
54. Indirect (or de facto) expropriation refers to a measure taken by a host State that cannot be
characterized as an outright seizure of a foreign investment, but which results in substantial
deprivation of the value or use of the investment.67 There is no universally accepted definition
of indirect expropriation. Therefore, tribunals revert to three approaches: radical ‘police
powers’ (Section 2), moderate ‘police powers’ (Section 3), and ‘sole effects’ . While the
radical doctrine focuses exclusively on a measure's public purpose, the moderate doctrine
supplements this with an assessment of the measure’s proportionality. In turn, the ‘sole
effects’ doctrine analyses ‘the effect of the measure on the property allegedly expropriated’.68
55. Respondent submits that the ‘police powers’ doctrine, in either of its forms, should be applied
in this case, rather than the ‘sole effects’ doctrine. Respondent wholly agrees with the tribunal
in Vivendi v. Argentina (II), which stated that ‘it is important to recognize a State’s legitimate
right to regulate and to exercise its police power in the interests of public welfare and not to
confuse measures of that nature with expropriation.’69 It is Respondent’s submission that the
‘police powers’ doctrine should be given way to in this case specifically because it was
explicitly agreed to by Ticadia and Kronos.
65 Exhibit (Exh) 5: Presidential Decree No. 2424, P52 L1441-1442. 66 Exh 5, P52 L1441. 67 Tecmed v. Mexico, paras 115-116; DR Holdings v. Dominican Republic, para 64; Alpha v. Ukraine, para 408. 68 Biloune v. Ghana, para 209. 69 Vivendi v. Argentina (II), para 139; Too v. Greater Modesto, para 26.
16
56. This follows the tribunal’s approach in Bear Creek v. Peru, where it was held that ‘to
determine whether the sovereign powers doctrine has any role to play in the present analysis,
the Tribunal must interpret and apply’ the relevant treaty.70 Like the Republic of Peru in Bear
Creek, Respondent seeks to claim that the BIT in question specifically focuses on the State’s
power to act, as evident from its ability to ‘protect human, animal or plant life or
health’.71This indicates that the ‘police powers’ doctrine is in line with the BIT. Applying the
‘sole effects’ doctrine would simply be contrary to party consent.
57. Therefore, in the following Sections 2 and 3 below, Respondent will argue that both the
radical and moderate approach to the ‘police powers’ doctrine shows that the Decree and its
measures are non-compensable regulations, undertaken in the exercise of bona fide police
powers. They do not constitute an indirect expropriation under Article 7(1) of the BIT.
2 Under the radical police powers doctrine, there has been no indirect expropriation
58. Respondent submits that the radical ‘police powers’ doctrine deems Respondent’s Decree a
non-compensable regulation as opposed to an act of indirect expropriation.
59. The radical approach considers any regulation which is bona fide, non-discriminatory and in
the interests of public health, safety, morals or welfare to be within the police power.72 It thus
takes a measure’s ‘public purpose’ as its decisive criterion. This has been upheld by numerous
tribunals, including the Sedco v. Iran tribunal.73 Here, it was held that it is ‘an accepted
principle of international law that a State is not liable for economic injury which is a
consequence of bona fide ‘regulation’ within the accepted police power of States.’74 The
decisions in Methanex v. USA75 and Saluka v. Czech Republic76 affirmed this interpretation.
60. Respondent submits that the Decree satisfies the conditions set out in these cases, as the
Decree is, firstly, a bona fide measure in the public interest (Sub-section 2.1), and, secondly,
enacted in a non-discriminatory manner (Sub-section 2.2).
70 Bear Creek v. Peru, para 452. 71 Article 10(1)(a) of the BIT, P43 L1216. 72 Mostafa, p 273. 73 Sedco v. Iran, para 275. 74 Sedco v. Iran, para 275. 75 Methanex v. USA, para 410. 76 Saluka v. Czech Republic, paras 254, 262.
17
2.1 The Decree is a bona fide measure
61. Respondent submits that the Decree is a bona fide measure, Bona fide measures have been
defined as entailing ‘some genuine interest of the public.’77
62. Respondent submits that the Decree pursues a genuine interest of the public. This is first
based on the threat posed by the exploitation of lindoro to the environment and human life –
two vital interests of the public (2.1.1). Second, the Decree clearly is geared towards
achieving these objectives (2.1.2). Third, the Study, which incentivised Respondent to realise
these objectives, is scientifically sound (2.1.3). Finally, Respondent was entitled to implement
the Decree for public purposes in light of the 1992 Convention (2.1.4).
2.1.1 There is a vital interest of the public at stake
63. Respondent submits that the Decree responds to a genuine interest of the public. Newcombe
and Paradell state that, at the very least, there must be some demonstrable public interest or
genuine public need.78 The threat posed by lindoro exploitation to the environment and public
has resulted in a genuine public need for action. The Study detailed the harm caused by
mining lindoro, and particularly the release of graspel, which has contaminated the Rhea
River to the extent that it is one of the three most polluted rivers in the world.79 The Study
further notes the 45% increase in CVD since lindoro exploitation commenced in Kronos.80
The public health threat posed by the exploitation is grave, as demonstrated by the finding
that 88% of newborns show early symptoms of microcephaly, which was virtually nonexistent
prior to 2012, soon after which Claimant commenced its activities in Respondent’s territory.81
Respondent submits that this demonstrates that the Decree is a bona fide measure.
2.1.2 These interests constitute the core of the Decree
64. The submission that the Decree was genuinely adopted with this public interest in mind is
further supported through a comparison with Methanex v. USA. The tribunal there assessed
the evidence upon which California banned a gasoline additive. California’s decision was
primarily based on research conducted by the University of California (the UC Report), which
concluded, among other things, that there are significant risks associated with water 77 ADC v. Hungary, para 432. 78 Newcombe and Paradell, para 7.32. 79 Exh 4, P 50 L 1390. 80 Exh 4, P 51 L 1405. 81 Exh 4, P 51 L 1410.
18
contamination due to the use of the gasoline additive.82
65. This is similar to the Study in this case, which concluded that ‘the contamination of the Rhea
River is undoubtedly a direct consequence of the exploitation of lindoro’.83 Respondent can
therefore point to the Study in highlighting that the public interest of preventing further
contamination was at the core of the Decree.
2.1.3 The Study, incentivising the realisation of these objectives, is scientifically sound
66. Third, Respondent contends that the Study was scientifically sound. In fact, in its findings on
the scientific evidence, the Methanex tribunal found that the existence of scientific
disagreement with regards to the gasoline additive did not warrant a conclusion that the UC
Report was a political sham. Likewise, Respondent submits that the findings of the Study in
this case are scientifically sound despite the connection between water contamination by
graspel and an increase in CVD ‘is not widely accepted’.84 The findings of the Study are
serious, objective, and scientific, and therefore constitute a legitimate basis on which
Respondent based the implementation of the Decree.
2.1.4 Respondent was entitled to implement the Decree for public purposes in light of the
1992 Convention
67. Respondent submits that it was entitled to implement the Decree in order to further this bona
fide public purpose. This contention is based on Article 2.5 of the 1992 Convention, which
both Kronos and Ticadia have ratified.85 This provision states that the Parties may act in
accordance with the precautionary principle even if scientific research has not fully proved a
causal link.86
68. First, it is Respondent submission that a causal link can be demonstrated. Despite the fact that
‘since the issuance of the Decree, the levels of microcephaly and cardiovascular disease
among the Kronian population have not significantly decreased’ in no way means that there is
no causal link between the exploitation of lindoro and specific diseases.87 In fact, this
demonstrates a causal link as, while not significant, the levels of these diseases have 82 Methanex v. USA, para 9. 83 SUF, P35 L994-995. 84 SUF, P36 L1003-1005. 85 SUF, P32 L877-878. 86 1992 Convention, Art 2.5. 87 PO No. 3, P59 L1624-1626.
19
decreased since the Decree was issued. It is only natural that the levels of microcephaly and
CVD cannot decrease significantly in such a short period of time, especially seeing as the
decontamination of the Rhea River, where these diseases spread, is predicted to take as long
as five years.88
69. Second, should the causal link not be recognised by this Tribunal, Respondent submits that it
was nonetheless entitled to adopt legislation. Under the 1992 Convention, Respondent was
acting within its rights by implementing the KEA and the Decree to reduce the transboundary
impact of the Rhea River’s contamination89 Article 2.5 of the 1992 Convention further
establishes that the fact that the ‘Study does not conclusively establish a causal link between
the exploitation of lindoro and the rising incidence of specific diseases’ does not in any way
prevent Respondent from implementing the legislative measures.90 It was reasonable for
Respondent to adopt legislative measures, namely the KEA, and administrative measures,
namely the Decree, to protect the public as well as the environment, thereby reducing any
transboundary impact. In light of these facts, Respondent was entitled to implement the
Decree in light of the public purpose being advanced.
70. Protecting the Kronian public from further harm, and decreasing the level of disease present
in the territory, highlights the genuine public interest which was at the core of Respondent’s
Decree. Not only is this bona fide; it is applaudable.
71. Therefore, Respondent submits that the threat to the environment and public health, as evident
from the Study, sufficiently shows that the Decree was enacted for a bona fide public purpose.
This falls squarely within the Respondent’s police powers such that it cannot be liable for,
what is alleged to be, expropriation.
2.2 The Decree was enacted in a non-discriminatory manner
72. Second, Respondent submits that in addition to being enacted in the public interest, the
Decree was also non-discriminatory in nature. In customary international law, non-
discrimination entails like persons being treated in an equivalent manner and different persons
being treated in an inequivalent manner.91 While the latter is unlikely to be an issue in this
case, Respondent submits that it has treated all like persons in an equivalent manner. In fact,
Respondent has made clear that the terms of the Decree would apply to all licences and 88 Answer to Request for Arbitration, P17 L456-457. 89 SUF, P35 L995-22. 90 SUF, P35-36 L995-998. 91 Brownlie, p 546-547.
20
companies involved in lindoro exploitation.92 Therefore, Respondent submits that the Decree
did not discriminate against Claimant, but was rather a ban on all lindoro-related activity.
73. In totality, Respondent submits that the Decree satisfies the conditions to be regarded as an
exercise of radical police powers. The Decree is a bona fide measure enacted in the public
interest and in a non-discriminatory manner. It is therefore, under the radical ‘police powers’
doctrine, a non-compensable regulation and not an indirect expropriation of Claimant’s
investment.
3. Under the moderate ‘police powers’ doctrine, there has been no indirect expropriation
74. Alternatively, Respondent submits that if the moderate ‘police powers’ doctrine is adopted,
nonetheless the Decree is rendered a non-compensable regulation as opposed to an indirect
expropriation under Article 7 of the BIT.
75. The moderate analysis of ‘police powers’ considers the effect of Respondent’s measure on
Claimant’s investment, while acknowledging and assessing the right to regulate. This
Tribunal may favour this approach over the radical ‘police powers’ doctrine and should
favour it over the sole effects theory, as it considers the interests of the investor, as well as the
rights of the State.
76. The assessment envisioned by the moderate ‘police powers’ doctrine typically involves a
three stage test that analyses whether the measure is reasonably connected to the objective
pursued (Sub-section 3.1); the least restrictive means of achieving the State’s aim (Sub-
section 3.2); and proportionate in relation to the interests involved (Sub-section 3.3).93 These
will be looked at in turn, culminating in Respondent submitting that Article 7 of the BIT has
no been breached.
3.1 The measure adopted by the State was reasonably connected to the objective it pursued
77. First, Respondent submits that the measures adopted were reasonably connected to the
objective it pursued. In other words, the measures implemented by Respondent were suitable
in fulfilling environmental objectives.
78. Suitability has been defined as ‘a reasonable relationship of proportionality between the
charge or weight imposed to the foreign investor and the aim sought to be realized by any 92 Exh 5, P52 L1436-1438. 93 Azurix v. Argentina, para 311.
21
expropriatory measure’.94
79. Respondent submits that the relationship here is reasonable. It was a suitable response to
terminate the Agreement and revoke Claimant’s operating licences. Support for this
submission is found in Article 5(a) Protocol on Water and Health to the 1992 Convention.
This states that ‘the precautionary principle, by virtue of which action to prevent, control or
reduce water-related disease shall not be postponed on the ground that scientific research has
not fully proved a causal link between the factor at which such action is aimed, on the one
hand, and the potential contribution of that factor to the prevalence of water-related disease’.95
80. The fact that specific diseases were ‘virtually non-existent prior to Claimant’s operations in
Respondent’s territory’,96 and that ‘at least 10 different studies conducted by top-tier
universities and independent researchers across the globe over the last 5 years have
demonstrated a connection between water contamination by graspel and an increase in
cardiovascular disease in the population of the surrounding areas’,97 renders the
implementation of the Decree sufficiently suitable in preserving the environment. The
termination of the licences prevents Claimant from further harming the environment in this
manner, as it prohibits the exploitation of lindoro.
81. Therefore, Respondent submits that the measure is reasonably connected to the objective
pursued.
3.2 The measure adopted was the least restrictive means of achieving the State’s aim
82. Second, Respondent submits that the measures taken were by all means the least restrictive
measure available to achieve the State’s aim.
83. The test of whether the least restrictive measure available was opted for means that, if faced
with a choice of equally appropriate measures, the least onerous one has been selected.98
84. Respondent submits that it was not faced with a choice of equally appropriate measures in the
first place; it had to adopt measures to protect its environment and public health. This lack of
choice stemmed from the various detrimental prospects faced by Respondent including, but
not limited to the fact that:
94 Tecmed v. Mexico, para 122. 95 Exh 7, P54 L1473-1475. 96 SUF, P36 L997-998. 97 SUF, P36 L1000-1003. 98 Methanex v. USA, para 75.
22
1. The current level of contamination of the waters of the Rhea River places it among
the top three most polluted rivers in the world;99
2. Since 2011, there has been a constant yearly increase in cardiovascular disease in
the population of the areas surrounding of the exploitation of lindoro in Kronos,
amounting to a rise of 45% since 2011;100
3. 88% of the newborns examined have shown early symptoms of microcephaly,
such as disturbances in motor functions and facial distortions;101 and
4. Microcephaly was virtually non-existent in Kronos until 2012 when the first cases
appeared.102
85. With these in mind, Respondent submits that there are no alternative less restrictive measures,
which would have the effect of putting an end to these negative externalities. The only
solution Respondent could have opted for in order to do so was to prohibit the exploitation of
lindoro, which it did.
86. Therefore, the Decree and its effects constitute the least restrictive option Respondent could
have chosen in order to fulfil its aim.
3.3 The effects of the measure were proportionate in relation to the interests involved
87. Finally, Respondent submits that the benefits of realising the State’s aim exceeded the harm to
the relevant rights of investors.
88. Respondent’s submission is based on the fact that implementing the Decree ensured that the
‘tens of millions of USD’ required to treat the population directly affected by the
contamination of the Rhea River is not being amplified even further.103 It is important to note
that while not significantly, the levels of these diseases have decreased since the Decree was
issued.104 This means that the Decree has had the benefit of limiting the population that is
exposed to horrible, incurable diseases like CVD and microcephaly. This is sound evidence of
the advantage gained by realising the State’s aim.
99 Exh 4, P50-51 L1392-1395. 100 Exh 4, P51 L1402-1405. 101 Exh 4, P51 L1411-1412. 102 Exh 4, P51 L1412-1413. 103 Answer to Request for Arbitration, P17 L457-458. 104 PO No. 3, P59 L1624-1626.
23
89. Furthermore, Respondent submits that it is an advantage that far outweighs the harm to the
relevant rights of Claimant. While Claimant alleges that it has been unable to honour its
contractual obligations,105 this does not outweigh the harm that would have been inflicted on
the environment and the Kronian population if the Decree had not been adopted. In fact, by
comparison, the alleged harm inflicted upon Claimant’s rights is minute, and is most
definitely outweighed by the benefit derived from the Decree. As a result, Respondent
submits that the measure was not excessive in relation to the interests involved.
90. In conclusion, having assessed the three-tier test, Respondent concludes that, the even under
the more restrictive interpretation advanced under the moderate police powers doctrine, this
Tribunal should find that the actions of Respondent have not amounted to indirect
expropriation.
4. Conclusion
91. Taken together, the arguments in Sections 1 to 3 refute any suggestion that Respondent’s
actions constitute indirect expropriation. The police powers doctrine, whether approached
from a moderate or radical perspective, renders Respondent’s applaudable efforts to protect
its population and safeguard the environment a non-compensable regulation. Thus,
Respondent submits that there has been no indirect expropriation of Claimant’s investment,
discrediting any attempt to allege that Article 7 of the BIT has been breached.
C. Any alleged expropriation is lawful
92. Respondent’s next submission is that the alleged expropriation is lawful. While the conditions
listed in the BIT at issue are cumulative,106 it is Respondent’s submission that all four
requirements under Article 7(1) of the BIT, relating to due compensation (Sub-section 1), a
public purpose (Sub-section 1), due process of law (Sub-section 3) and non-discrimination
(subsection 4), have been complied with, such that this Tribunal should find any alleged
expropriation to be lawful.
1. Respondent is not liable to pay compensation
93. Respondent submits that it is not obliged to pay compensation to Claimant because the 105 SUF, P36 L1012-1015. 106 Crystallex v. Venezuela, para 716.
24
measures at issue constitute non-compensable regulations rather than an indirect
expropriation, as argued previously. It has been noted that
‘the principle that a State does not commit an expropriation and is thus not liable to pay compensation to a dispossessed alien investor when it adopts general regulations that are ‘commonly accepted as within the police power of States’ forms part of customary international law today’.107
94. The application of this rule has been stated in greater depth in Part 3, Section 3. Therefore,
Respondent submits that its measures are by all means lawful.
95. Besides being a non-compensable regulation, Respondent also submits that no compensation
is owed because the Decree is not irreversible or permanent. Respondent points to the
tribunal’s decision in BG Group v. Argentina, which notes that compensation for
expropriation is required if the measure adopted by the State is ‘irreversible and
permanent’.108 In the present case, Respondent is still considering reinstating Claimant’s
licences for the exploitation of lindoro.109 Therefore, the Decree is neither irreversible nor
permanent.
96. Therefore, Respondent concludes that no compensation is owed to Claimant since the Decree
is a non-compensable regulation and it is not irreversible or permanent, rendering any alleged
expropriation lawful.
2. Respondent’s conduct is for a public purpose
97. Respondent submits that the expropriation does fulfil a public purpose, rendering it lawful.
When examining a public purpose as a condition for lawfulness of an expropriation, this
Tribunal must observe, ‘a treaty requirement for ‘public interest’ requires some genuine
interest of the public.110
98. This is assessed by means of the same four stage test that was adopted in relation to the
moderate police powers doctrine, as discussed in Part 3, Section 3. Having examined each of
these sub-tests previously, Respondent submits that any expropriation, if found, should be
held to be lawful.
107 Saluka v. Czech Republic, para 262. 108 BG Group v. Argentina, para 268. 109 PO No. 3, P 59 L 1645-1647. 110 ADC v. Hungary, para 432.
25
3. Due process of law requirements have been abided by
99. Respondent submits that due process standards, required in order for this Tribunal to find any
alleged expropriation to be lawful, have been abided by.
100. Due process entails ‘an actual and substantive legal procedure for a foreign investor to raise
its claims against the depriving actions already taken or about to be taken against it.’111 In the
present case, Respondent submits that such procedures were followed to the extent possible.
101. The actual and substantive legal procedure provided to Claimant has to be analysed in light of
the urgency required to address the threat facing Kronos. The decontamination of the Rhea
River, the health of a large number of Kronian people, and the environment itself depended on
swift action by Kronian authorities. In light of these circumstances, the four months between
the publication of the Study and the issuance of the Decree are to be considered sufficient in
allowing Claimant to raise any claims.112 This is especially the case because Kronian
domestic law deems such swift action constitutional.113
102. Therefore, Respondent submits that due process considerations have been followed when
enacting the Decree, such that any alleged expropriation should be held to be lawful.
4. Non-discrimination requirements have been abided by
103. Lastly, Respondent submits that the non-discrimination requirement of a lawful expropriation
has been abided by. In customary international law, non-discrimination entails like persons
being treated in an equivalent manner and different persons being treated in an inequivalent
manner.114
104. In the present case, the Decree applies to all entities within Respondent’s territory that exploit
lindoro. It does not target Claimant specifically.115
105. The decision to implement the Decree was based on the Study, which showed that the
exploitation of lindoro poses a threat to human health and life.116 It is only logical that the
Decree prohibits all companies from exploiting lindoro; the fact that Claimant is the only
entity exploiting lindoro in Respondent’s territory is coincidental.117
111 ADC v. Hungary, para 435. 112 Exh 4, P51 L1396-1397. 113 SUF, P35 L969-971. 114 Brownlie, p 546-547. 115 Exh 5, P52 L1435. 116 SUF, P 35-36 L 993-1004. 117 SUF, P33 L926-928.
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106. Thus, Respondent submits that it acted in a non-discriminatory fashion, rendering the alleged
expropriation lawful.
5. Conclusion
107. Respondent concludes that any alleged expropriation is lawful since all the four requirements
under Article 7 (1) are met.
D. Respondent can justify its actions
108. Respondent submits that even if this Tribunal finds there to be unlawful expropriation, this
can be justified under Article 10 of the BIT. Respondent’s measures fulfil the objective listed
in Articles 10(1)(a) of the BIT (Section 1) and in 10(1)(c) of the BIT (Section 2).
Additionally, the threshold of the nexus requirement between the alleged objective and the
measure is met (Section 3) and the requirements of the chapeau contained in the Article 10(2)
of the BIT are complied with (Section 4).
109. This submission relies on WTO law as a basis as Article 10 of the BIT bares substantial
resemblance to Article XX of the GATT. Hence, WTO case law should be used as a
‘supplementary means of interpretation’ pursuant to Article 32 of the VCLT. Moreover,
Tribunals have explicitly found that WTO law is relevant to investor-State arbitration. For
example, in Methanex v. USA, the tribunal stated that it ‘may derive guidance from the way in
which a similar phrase in the GATT has been interpreted in the past.’118 Article 10 of the BIT
should thus be interpreted in light of WTO case law.
110. Furthermore, Respondent submits that the general exception clause contained in Article 10 of
the BIT should not be confused with the higher threshold of the necessity defense under
customary international law. As the tribunals in LG&E v. Argentina119 and Continental v.
Argentina120 highlighted, a general exception clause must be interpreted independently from
the customary necessity defense. Applying the necessity defense under customary
international law when interpreting the nexus requirement of Article 10 of the BIT would be
‘a manifest error of law’.121 Hence, the interpretation of Article 10 of the BIT will be based on
WTO jurisprudence solely.
118 Methanex v. USA, para 6. 119 LG&E v. Argentina, para 49. 120 Continental v. Argentina, para 192. 121 CMS v. Argentina, para 130.
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1. The standard in Article 10(1)(a) of the BIT is met
111. In line with the interpretations put forward by WTO law, Respondent first submits that
Article 10(1)(a) of the BIT, which concerns the protection of human, animal or plant life or
health, is met. This provision requires an analysis of the design and structure of the
measure.122 In doing so, this Tribunal must be made aware that Respondent needs to establish
the ‘existence not just of risks to ‘the environment’ generally but specifically of risks to
animal or plant life or health’.123
112. Respondent contends that Article 10(1)(a) of the BIT provides Respondent with a justification
for any alleged breaches of the BIT. This submission is based on the fact that specific diseases
were ‘virtually non-existent prior to Claimant’s operations in Respondent’s territory’.124 In
addition, ‘at least 10 different studies conducted by top-tier universities and independent
researchers across the globe over the last 5 years have demonstrated a connection between
water contamination by graspel and an increase in CVD in the population of the surrounding
areas’.125 These facts demonstrate the extent to which the measures taken by Respondent were
geared towards protecting both human life and health, as well as that of animals and plants
affected by the contamination of the Rhea River. The termination of the mining licences
prevents Claimant from causing further harm and allows Respondent to protect the life and
health of the Kronian population, as well as that of animals and plants.
113. Therefore, the alleged expropriation is designed and structured in a manner that is oriented
towards meeting the objectives listed in Article 10(1)(a) of the BIT.
2. The standard in Article 10(1)(c) of the BIT is met
114. Respondent submits that Article 10(1)(c) of the BIT also justifies any alleged breach. This
provision entitled action to be taken for the purposes of conserving living or non-living
exhaustible natural resources. According to US – Gasoline, the measure must be primarily
aimed at conservation.126 An evolutionary approach has been endorsed, such that even the
preservation of clean air has been held to satisfy the WTO-equivalent provision of Article
122 China – Raw Materials, para 7.479. 123 Brazil – Retreaded Tyres, para 7.46. 124 SUF, P36 L997-998. 125 SUF, P36 L1000-1003. 126 China – Raw Materials, para 357; US – Gasoline (Panel Report), pp 18-19.
28
10(1)(c) of the BIT.127
115. Therefore, Respondent submits that like clean air, clean water can satisfy this provision, as it
constitutes an exhaustible natural resource due to increasing pollution around the globe, and
particularly within Kronos. As the measure is primarily aimed at remedying environmental
pollution and health consequences stemming from the pollution of a body of water,
Respondent submits that the policy objective at issue can be demonstrated.128
3. The nexus requirement in Article 10 of the BIT is satisfied
116. Respondent further submits that the threshold of being necessary for the purpose of these
policy objectives has been satisfied, too. Per Brazil – Retreaded Tyres, this requires an
assessment of the contribution to the policy objective, the values at stake, and the
restrictiveness of the measure.129
3.1 The Decree is apt to make a contribution to the achievement of the policy objectives
117. With regards to the first limb as espoused by Brazil – Retreaded Tyres, the measure needs to
be ‘apt to make a material contribution to the achievement of its objective’, which Respondent
submits it is.130 It was held in EC – Hormones that it is for the State to determine the
appropriate level of protection and this is not dependent on scientific opinion.131
118. Given that ‘at least 10 different studies conducted by top-tier universities and independent
researchers across the globe over the last 5 years have demonstrated a connection between
water contamination by graspel and an increase in CVD in the population of the surrounding
areas’.132 Respondent can point to a genuine relationship of ends and means between the
objective pursued and the measure at issue.133 This relationship makes it clear that the Decree
is apt to make a material contribution to the policy objectives mentioned in Sections 1 and 2
above.
119. Therefore, the Decree is apt to make a material contribution to the objectives at stake, such
that the first limb of the nexus requirement is met.
127 US – Gasoline (Appellate Body Report), para 6.37; Mitchell, p 21. 128 PO No. 2, P56-57 L1557-1558. 129 Brazil – Retreaded Tyres, para 156. 130 Brazil – Retreaded Tyres, para 150. 131 EC – Hormones, para 194. 132 PO No. 1, P36 L1000-1004. 133 Brazil – Retreaded Tyres, para 145.
29
3.2 The values at stake are vital
120. The second limb required by the necessity test, entailing an assessment of the interests and
values at stake, is also met in Respondent’s submission. The protection of the environment by
means of preventing the pollution of bodies of water is of high value to society. Therefore,
any alleged expropriation was necessary for the purpose of the policy objectives discussed
above.
3.3. The Decree was the least restrictive means of achieving the police objectives
121. Respondent contends that the measures implemented constitute the least restrictive means
available to achieve the State’s aim. It is important to bear in mind that Claimant bears the
burden of having to identify possible alternatives, per Brazil – Retreaded Tyres, whilst
Respondent need not show that ‘there are no reasonably available alternatives to achieve its
objectives’.134
122. Respondent submits that the Decree was the least restrictive measure available ‘while making
an equivalent contribution to the objective’.135 Both the licence and the Agreement allow for
the exploitation of lindoro, which was the cause of environmental damage in the first place.
Implementing the Decree constitutes the route that was least restrictive in that Respondent
only took the steps necessary to prevent further environmental damage. Respondent therefore
submits that the third aspect of the necessity test is met.
4. The chapeau in Article 10 of the BIT is met
123. The final hurdle, which Respondent submits it has overcome, is that relating to arbitrary or
unjustifiable discrimination between investments or between investors as well as that
concerning a disguised restriction on international trade or investment. This requirement,
found in Article 10(2) of the BIT, can be likened to the chapeau of Article XX GATT.
4.1 Respondent’s actions were not arbitrary or unjustifiable
124. As any allegation of arbitrary or unjustifiable discrimination is likely to be based on a rumour 134 US – Gambling, para 309. 135 China – Publications and Audiovisual Products, para 335.
30
published in a magazine unaffiliated with Kronos, Respondent submits that it complies with
Article 10(2)(a) of the BIT.
125. Respondent submits that the Global Mining publication is insufficient to prove Claimant case.
To support this contention, Respondent points to Pulp Mills on the River Uruguay (Argentina
v. Uruguay), where the ICJ noted that: ‘...it is the duty of the party which asserts certain facts
to establish the existence of such facts.’136 Moreover, the ICJ has stated that the tribunal must
‘treat with caution evidentiary materials specially prepared for this case and also materials
emanating from a single source’137 and that it can merely be used for ‘corroborating the
existence of a fact’.138 The global mining publication is thus not reliable since it is merely a
press article lacking in evidence. As the tribunal in Rompetrol v. Romania stated:
‘the nature of this material seems to the Tribunal to make it of limited forensic use in the absence of anything further in the way of confirmation or corroboration.’139
126. Using similar phraseology, Respondent concludes that the nature the Global Mining
publication is of limited use, such that Respondent’ actions entail neither arbitrary nor
unjustifiable discrimination.
4.2 There has been no disguised restriction on investment
127. Respondent further argues that there has been no disguised restriction on investment, such
that Article 10(2)(b) of the BIT does not prevent any alleged expropriation from being
justified.
128. Respondent’s submission for there being no disguised restriction on investment hinges on the
fact that the Decree does not specifically target Claimant, but aims at filling a lacunae present
in the mining sector.140 The Study and the findings of ‘top-tier universities and independent
researchers across the globe’ demonstrate the gap that needs to be filled in relation to
environmental regulations in order to prevent further harm to human health and life.141 The
fact that Claimant is the only company engaging in the exploitation of lindoro prohibited by
136 Pulp Mills on the River Uruguay (Argentina v. Uruguay), para. 162; Rompetrol v. Romania, para 178; Feldman v. Mexico, para 177; Apotex v. USA, paras 8.7-8.8. 137Case Concerning Armed Activities on the Territory of the Congo (Democratic Republic of the Congo v. Uganda), para 61. 138 Case Concerning Armed Activities on the Territory of the Congo (Democratic Republic of the Congo v. Uganda), para 62. 139 Rompetrol v. Romania, para 215. 140 PO No. 1, P33-34 L919-920 and 952-953. 141 PO No. 1, P35-36 L993-1003.
31
the Decree in Respondent’s territory is purely coincidental for these purposes.142
129. Therefore, Respondent submits that the requirements of the chapeau are met.
130. In addition to the chapeau-like requirement, Respondent made submissions with regards to
the policy objectives and the necessity threshold of Article 10 of the BIT, culminating in the
conclusion that any alleged expropriation is justifiable under the BIT.
E. Conclusion
131. Part I of the merits can be concluded with Respondent submission that there has been no
direct or indirect expropriation, and that any alleged expropriation is both lawful and
justifiable.
II. Claimant cannot raise additional claims
132. Respondent contends that Claimant is not able to raise claims regarding obligations other than
under Article 7 of the BIT.
133. Despite Claimant’s assertion that it ‘reserves the right to invoke additional breaches by
Respondent,’143 this has been restricted by the Tribunal itself, which, in this case, restricted
any claims to Article 7 of the BIT.144 The list of obligations to be addressed by the SCC
during the Main Stage is exhaustive and makes no suggestion that claims relating to anything
other than expropriation may be brought under the BIT.145 Therefore, Respondent submits
that Claimant may only bring claims under Article 7 of the BIT.
III. There is no breach of Article 6 of the BIT
134. Should the Tribunal permit Claimant to raise additional claims, Respondent anticipates that
Claimant will submit that there has been a breach of the minimum standard of treatment
protection enshrined in Article 6 of the BIT.
135. Respondent submits that its actions do not breach Article 6 of the BIT, which requires
Contracting Parties to treat covered investments ‘in accordance with the customary
international law minimum standard of treatment of aliens, including fair and equitable 142 PO No. 1, P33 L926-928. 143 Request for Arbitration, P8 L221. 144 PO No. 1, P30 L823-825. 145 PO No. 1, P30 L819-826.
32
treatment and full protection and security.’146
136. The international minimum standard is ‘a norm of customary international law which…
[provides] for a minimum set of principles which States, regardless of their domestic
legislation and practices, must respect when dealing with foreign nationals and their
property.’147 To assess Respondent’s actions by this norm, the Tribunal must first decide on
its interpretation of the MST standard.
137. The wording of Article 6 of the BIT is peculiar and has resulted in some debate about the
significance of combining the MST, FET and FPS obligations. The issue can be summarised
as follows: is the phrase ‘including fair and equitable treatment and full protection and
security’ to be understood as ‘MST, encompassing FET and FPS’ (synonymous standards) or
‘MST as well as FET and FPS’ (autonomous standards)?
A. The MST obligation is synonymous with the FET standard
138. Respondent submits that this Tribunal should interpret MST and FET as synonymous
standards, for two reasons.
139. First, such a decision would be consistent with the interpretation in numerous arbitral awards
and bilateral trade and investment instruments, particularly those concerning Article 1105(1)
of the NAFTA, whose wording mirrors Article 6 of the BIT. In 2001, the NAFTA Free Trade
Commission (“NAFTA FTC”) issued a binding interpretation of the same Article, stating
that :
‘[the] concepts of ‘fair and equitable treatment’ and ‘full protection and security’ do not require treatment in addition to or beyond that which is required by the customary international law minimum standard of treatment of aliens.’148
140. The language of the NAFTA FTC’s note has found its way into subsequent model NAFTA
BITs, and been adopted by NAFTA tribunals, such as in the Pope & Talbot v. Canada149 and
Mondey v. United States150 cases. However, this interpretation is by no means restricted to the
NAFTA jurisdiction.151 It has been adopted numerous times in the non-NAFTA context,
146 Article 6(1) of the BIT, P41 L1153-1155. 147 OECD, ‘Fair and Equitable Treatment Standard in International Investment Law’ (2004) OECD Working Papers on International Investment 8, <http://dx.doi.org/10.1787/675702255435> accessed 9 September 2018. 148 NAFTA Free Trade Commission, ‘Notes of Interpretation of Certain Chapter 11 Provisions’ (2001), <http://www.sice.oas.org/tpd/nafta/Commission/CH11understanding_e.asp> accessed 9 September 2018. 149 Pope v. Talbot, paras 17-69. 150 Mondev v. USA, para 100. 151 Sornarajah, p 251.
33
including the China – Peru FTA,152 the New Zealand – Malaysia FTA,153 and the India –
Korea CEPA.154 There is, therefore, a widely established practice of adopting the synonymous
view of MST and FET in investment law.
141. Furthermore, the SCC should adopt the synonymous interpretation, because the tribunal in
Deutsche Bank v. Sri Lanka noted that ‘the actual content of the treaty standard of fair and
equitable treatment is not materially different from [that] of the minimum standard of
treatment in customary international law, as recognized by numerous arbitral tribunals and
academics.’155 Thus, by adopting the synonymous interpretation, this Tribunal avoids
duplicating standards of protection in a manner that proves cumbersome to arbitral
proceedings.
142. Finally, it should be noted that many commentators take the view that the autonomous FET
standard ‘lacks a clear standard, either in treaties or in international law’156 and, unlike MST
‘does not qualify as a system of objective and accessible commands’ which flows from
collective agreement, rather than the preferences and discretion of those in authority.157 To
interpret such a standard as somehow going beyond the MST and, worse still, as left to
arbitrators’ discretion, would be inconsistent with the rule of law. Indeed, as Montt argues,
‘the constraints of general international law… forbid arbitral tribunals from simply creating
well-intended norms of ‘almost perfect’ governance that lack roots in any currently existing
legal tradition.’158
143. Respondent thus contends that the ‘synonymous’ approach is best suited to the wording of the
BIT in the present case.
B. Respondent has not breached the MST, by any definition of the standard
1. Respondent has not breached the MST obligation per Neer v. Mexico
144. Respondent submits that it has not violated its MST obligation, under either the expansive or
restrictive definitions of the standard, outlined by arbitral tribunals and in customary
international law.
152 China – Peru FTA, Art 132. 153 New Zealand – Malaysia FTA, Art 10.10. 154 India – Korea Comprehensive Economic Partnership Agreement, Art 10.4. 155 Deutsche Bank v. Sri Lanka, paras 418-419. 156 Montt, p 299. 157 ibid, p 309. 158 ibid.
34
145. Respondent submits that under customary international law, the minimum standard of
treatment is derived from the test set out in the Neer decision.159 This case elucidated that ‘the
treatment of an alien, in order to constitute an international delinquency, should amount to an
outrage, to bad faith, to wilful neglect of duty, or to an insufficiency of governmental action
so far short of international standards that every reasonable and impartial man would readily
recognize its insufficiency.’160
146. There is no evidence on the facts that Respondent’s actions were negligent, and certainly not
so as to invite widespread outrage. On the contrary, Respondent issued the Decree in keeping
with its obligation and duty to protect the environment and people within its territory.161 In
light of the significant environmental harm caused by Claimant’s activities, as detailed in the
Study, Respondent would have been neglecting its duties had it not taken decisive action.
Respondent not only justified its measures, but also offered to restore Claimant’s license
should it accept responsibility for the pollution to the Rhea River.162 It is clear from these
facts that Respondent’s actions were not a negligent or unreasonable exercise of power, but
the justified performance of its duties.
147. Therefore, Respondent submits that it has not violated Article 6 of the BIT.
2. Respondent has not breached the MST under a more expansive standard
148. If this Tribunal seeks to apply a more expansive definition than that outlined in Neer,
Respondent submits that it should adopt the approach put forth in Waste Management v.
Mexico. In that case, the tribunal held that a number of awards
‘suggest that the minimum standard of treatment of fair and equitable treatment is infringed by conduct attributable to the State and harmful to the claimant if the conduct is arbitrary, grossly unfair, unjust or idiosyncratic, is discriminatory and exposes the claimant to sectional or racial prejudice, or involves a lack of due process leading to an outcome which offends judicial propriety – as might be the case with a manifest failure of natural justice in judicial proceedings or a complete lack of transparency and candour in an administrative process.’163
149. Even taking this broader definition of MST, there is no evidence that Respondent’s actions
were discriminatory, arbitrary or unfair. The Decree was issued to the public, and clearly
detailed the basis and purpose of the measures adopted by Respondent. It noted the harm
159 Subedi, p 748. 160 Neer v. Mexico, paras 61-62; Blackaby, para 8.106. 161 Exh 5, P52 L1426-1431. 162 PO No. 3, P59 L1644-1647. 163 Waste Management v. Mexico, para 98.
35
posed by lindoro exploitation to the environment and human life, as well as its intention to
enforce the ‘polluter pays’ principle, enshrined in Article 9 of the BIT.164
150. The KEA was passed in a lawful and transparent manner. The draft bill, sent to the House in
March 2015, was passed in June 2015, giving its critics in Kronian legislature an opportunity
to debate its provisions.165 Due to the urgent response necessitated by Claimant’s damaging
activities, the Speaker of the House acted within her constitutional authority and waived the
public hearing required by Article 59 of the Kronian constitution.166
151. Respondent’s actions, while expedient, were not so abnormal as to ‘offend judicial
propriety.’167 There is no evidence on the facts that the measures taken exposed Claimant to
any discrimination or prejudice.
152. Therefore, Respondent submits that, even within the more stringent definition of MST,
Respondent has not violated Article 6 of the BIT.
IV. Respondent has not violated the FET standard by frustrating legitimate expectations
153. Respondent submits that even if this Tribunal opts for the ‘autonomous’ approach, viewing
FET and MST as separate standards, Respondent’s actions have not violated Article 6 of the
BIT, as it acted in accordance with the FET standard. The most comprehensive approach to
FET has been adopted by the tribunal in Tecmed v. Mexico, which stated that the FET
standard requires:
‘The foreign investor expects the host State to act in a consistent manner, free from ambiguity and totally transparently in its relations with the foreign investor, so that it may know beforehand any and all rules and regulations that will govern its investments, as well as the goals of the relevant policies and administrative practices or directives, to be able to plan its investment and comply with such regulations.’168
154. In this sense, the ‘dormant’ FET standard was brought to life as a backdoor route to hold
States accountable for behaviour not otherwise caught. This is particularly true in relation to
the doctrine of legitimate expectations – the ‘most glaring example of expansionary
activism’.169 The investor’s legitimate expectations are based on the host State’s legal
framework and on any undertakings and representations made explicitly or implicitly by the
164 Exh 5, P52 L1425-1433. 165 SUF, P34 L952-958. 166 SUF, P35, L968-975. 167 Waste Management v. Mexico, para 98. 168 Tecmed v. Mexico, para 154. 169 Sornarajah, p 451.
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host State.170 However, even if this Tribunal decides to entertain such an activist approach, by
including legitimate expectations under the FET standard, Respondent maintains that the
obligation has not been breached. This is because only a reversal of assurances by the host
State171 (Section 1) or a fundamentally modification of the regulatory framework for the
investment beyond an acceptable margin of change (Section 2) will violate the principle of
FET.172 Neither aspect can be proven, hence legitimate expectations were not frustrated.
A. Respondent did not give Claimant any specific assurances
155. Respondent submits that no specific assurances have been made to Claimant.
156. First, any of Respondent’s measures are incapable of giving rise to specific assurances as the
BIT lacks a stabilisation clause. A stabilisation clause is a provision that prevents a host State
from changing legislation, demands compensation for implementing new laws, or requires
investors to be placed in the position they were in prior to the changes.173 No such provision is
in the BIT. Furthermore, Article 2.2.1 of the Agreement provides for the contrary, explicitly
stating that Kronos will change its legislative framework ‘in light of new laws and
regulations’.174 This is contextualised by the tribunal in El Paso v. Argentina, which stated
that:
‘changes to general legislation, in the absence of specific stabilization promises to the foreign investor, reflect a legitimate exercise of the host State’s governmental powers that are not prevented by a BIT’s fair and equitable treatment standard.’175
157. Given that there is no stabilization clause in the BIT, Respondent submits that its actions did
not give rise to specific assurances.
158. Second, Respondent points to tribunals, which have found that political statements made by
host States are insufficient to create specific assurances for investors.176 Since Claimant can
only point to political statements, no specific assurances have been made. While the
presidential statement assured Claimant that the lack of a specific regulatory framework for
mining activities was not a risk for Claimant’s activities,177 it does not constitute a specific
170 Dolzer and Schreuer, p 145. 171 EDF v. Romania, para 217. 172 El Paso v. Argentina, para 402. 173 World Bank Group, 'Stabilization Clauses and Human Rights' (2009), <https://www.ifc.org/wps/wcm/connect/9feb5b00488555eab8c4fa6a6515bb18/Stabilization%2BPaper.pdf?MOD=AJPERES&CACHEID=9feb5b00488555eab8c4fa6a6515bb18> accessed 9 September 2018. 174 Exh 2, P47 L1307-1309. 175 El Paso v. Argentina, para 402. 176 Continental Casualty v. Argentina, para 261; El Paso v. Argentina, paras 375-9, 392-5. 177 SUF, P34 L940-943.
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assurance that domestic law will not change. In fact, the tribunal in Saluka v. Czech Republic
stated that:
‘No investor may reasonably expect that the circumstances prevailing at the time the investment is made remain totally unchanged. In order to determine whether frustration of the foreign investor’s expectations was justified and reasonable, the host State’s legitimate right subsequently to regulate domestic matters in the public interest must be taken into consideration as well.’178
159. Similarly, in Urbaser v. Argentina, the tribunal stated that amendments ‘must have been
deemed to be accepted by the investor when entering into the investment and the Concession
Contract.’179 Respondent submits that the likelihood of implementing measures enacted to
ensure the population’s health, as was the case in in Urbaser v. Argentina, was accepted by
Claimant when entering into the investment and the Agreement.
160. Therefore, Claimant had no specific assurance that domestic law in Kronos would not change;
it simply could not expect the legal order to freeze for eight centuries while the Agreement
was in place.
B. There has been no total alteration of the legal framework for investment
161. Respondent submits that there has not been a total alteration of the legal framework. This
requires a consideration of the extent of change.180 The extent of change has been minimal. In
fact, for Claimant to argue that the implementation of one new piece of legislation constitutes
a total alteration of the legal framework is a significant leap.
162. In addition to the extent of change, it must be considered whether any alteration is
unreasonable.181 Respondent submits that the change was far from unreasonable. First, the
change is foreseeable since Respondent already stated in the Agreement that new laws and
regulations will be adopted. Second, the change is based on the pressing nature of the
environmental damage and the harm imposed on a large majority of the Kronian population
due to Claimant’s exploitation of lindoro.182
163. As a result, Respondent submits that the extent of change is insufficient, and any
modifications are reasonable, such that no total alteration of the legal framework has taken
place. In addition to the expectations of Claimant not being legitimate, Respondent therefore
concludes that this aspect of the FET standard has not been breached. 178 Saluka v. Czech Republic, para 305. 179 Urbaser v. Argentina, para 622. 180 El Paso v. Argentina, para 374. 181 Impregilo v. Argentina, para 331. 182 Exh 4, P51 L1397-1397.
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PART FOUR: RESPONDENT’S COUNTERCLAIM
ISSUE 1: RESPONDENT’S COUNTERCLAIM IS ADMISSIBLE BEFORE THE SCC
164. Respondent submits that its counterclaim is admissible under investment arbitration
procedural rules, as well as Article 11(1) of the BIT, which provides:
‘A dispute between a Contracting Party and an investor of the other Contracting Party arising out of or relating to … an alleged breach of any right conferred or created by this Agreement with respect to an investment.’183
165. Respondent provides two arguments to support this claim. Firstly, the admissibility of a
counterclaim depends on a procedural analysis, which Respondent satisfies (Section I).
Secondly, Respondent counterclaim is in line with Article 11 of the BIT (Section II).
I. Procedurally, Respondent’s counterclaim is admissible
166. Respondent submits that the admissibility of a claim is a matter of procedure, rather than a
merits-based analysis.184 In line with the tribunal’s reasoning in Urbaser v. Argentina, a
counterclaim is admissible to the extent that it is sufficiently connected to the originating
claim.185 Specifically, the tribunal held that there was such a connection by establishing
‘manifest’ factual links between the claims, and because the claims were ‘based on the same
investment, or the alleged lack of sufficient investment, in relation to the same
Concession’.186
167. In the present case, both Claimant’s and Respondent’s claims are connected by numerous
factual links. They both concern the Agreement between the two parties, Respondent’s
Decree, and the environmental harm that has been perpetrated in Respondent’s territory.
Furthermore, both claims are borne out of the BIT; Claimant’s and Respondent’s claims
pertain to Articles 6187 and 9(2)188 of the BIT respectively.
168. As the counterclaim is significantly connected to both the facts and legal basis of the main
claim, Respondent submits that the former is admissible before this Tribunal.
183 Article 11(1) of the BIT, P44 L1226-1231. 184 Busta v. Czech Republic, pp 28-37. 185 Urbaser v. Argentina, para 1151. 186 Urbaser v. Argentina, para 1151; Burlington v. Ecuador, para 62. 187 Request for Arbitration, P8 L219-220. 188 Answer to Request for Arbitration, P17 L461.
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II. Respondent’s counterclaim may be brought under Article 11 of the BIT
169. Respondent’s counterclaim is in line with Article 11 of the BIT. Specifically, Article 11 of the
BIT is wide enough to encompass counterclaims (Section A), and Respondent’s counterclaim
is not barred by either Article 11(2) (Section B) or Article 11(3) (Section C) of the BIT.
A. The scope of Article 11 of the BIT is wide enough to include counterclaims
170. Claimants asserts that its counterclaim fits within the scope of Article 11 of the BIT. The
wording of the provision permits either Contracting Party to introduce a claim concerning an
investment, so long as it meets the requirements set out in the provision. As noted by the
tribunal in Goetz v. Burundi, it is not relevant that the BIT does not explicitly confer
competence on the Tribunal to examine counterclaims.189 The fact that Kronos is a
Contracting Party raising a counterclaim in relation to Claimant’s investment is sufficient.
Therefore, Respondent maintains that its counterclaim falls within the scope of Article 11 of
the BIT.
B. The counterclaim is not barred by Article 11(2) of the BIT
171. Respondent further submits that the recommendation to negotiate in Article 11(2) of the BIT
is not a precondition to bringing this dispute before the SCC. It has been accepted that non-
compliance with a cooling off period does not preclude a tribunal from proceeding; if it did, it
‘would have curious effects’, including forcing Kronos ‘to do nothing until six months have
elapsed, even where further negotiations are obviously futile, or settlement obviously
impossible for any reason’.190
172. Here, negotiations are futile and settlement impossible seeing as ‘sustaining its prohibition of
exploitation of lindoro’ was an aspect Respondent was not willing to concede.191 Furthermore,
the invocation of a cooling-off period by a claimant in order to held a counterclaim
inadmissible was qualified as ‘absurd’ by the Urbaser v. Argentina tribunal.192
189 Goetz v. Burundi, para 279. 190 Biwater Gauff v. Tanzania, para 343. 191 Request for Arbitration, P 37 L 190-191. 192 Urbaser v. Argentina, para 1149.
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173. As a result, Respondent may proceed with submitting its counterclaim to the SCC as it has
acted in accordance with Article 11(2) of the BIT.
C. The counterclaim is not barred by Article 11(3) of the BIT
174. Additionally, Respondent submits that the FITR clause contained in Article 11(3) of the BIT
does not bar it from submitting the counterclaim before this Tribunal.
175. Article 11(3) of the BIT precludes Contracting Parties from submitting claims to arbitration if
they have previously attempted to resolve their dispute using either of the forums outlined in
Articles 11(2)(a) or 11(2)(b) of the BIT.193
176. Respondent, unlike Claimant, has neither submitted the dispute to domestic courts nor used
previously agreed dispute-settlement procedures, as provided in the respective provisions.194
177. In the absence of such a choice of forum, Respondent submits that Article 11(3) of the BIT is
triggered and its counterclaim is admissible before the SCC.
III. Conclusion
178. In light of the above arguments, Respondent maintains that its counterclaim is admissible
before the Tribunal, in accordance with both investment arbitration procedure, and Article 11
of the BIT.
193 Article 11(3) of the BIT, P 44 L1238-1243. 194 Request for Arbitration, P 37 L 190-191.
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ISSUE 2: RESPONDENT’S COUNTERCLAIM IS MERITORIOUS
I. Claimant has failed to compensate for environmental damage it caused
179. Respondent submits that Article 9(2) of the BIT obliges Claimant to compensate for the
pollution it has caused. Article 9(2) of the BIT mandates that the ‘polluter should, in principle,
bear the cost of the pollution, with due regard to the public interest…’195 Respondent will
demonstrate that Claimant is responsible for the environmental degradation and health
problems in its territory, and that it has failed to compensate for same, in direct violation of
Article 9(2) of the BIT.
180. The findings of the Study link Claimant’s activities to the contamination of the Rhea River,
and increased incidence of CVD and microcephaly. Samples collected by the conductors of
the Study revealed ‘an abnormal amount of… graspel, a toxic substance released during the
exploitation of lindoro, in the waters of Rhea River.’196 Due to the high levels of
contamination, which the Study found was ‘undoubtedly a direct consequence of [lindoro
exploitation]’, the Rhea River is now one of the three most polluted rivers in the world.197
Furthermore, over ten independent studies conducted by top-tier universities, ‘have
demonstrated a connection between water contamination by graspel and an increase in CVD
in the population of the surrounding areas.’198
181. It is also uncontested that both CVD and microcephaly, another disease linked to Claimant’s
activities,199 ‘were virtually nonexistent prior to Claimant’s operations in [Kronos].’200
Evidently, Claimant’s mining activities caused severe damage to the environment and public
health.
182. Despite these findings, Claimant has failed to compensate Respondent for the damage it has
caused,201 in direct violation of its obligations under Article 9(2) of the BIT.
195 Article 9(2) of the BIT, P43 L1199-1205. 196 Exh 4, P50-51 L1390-1395. 197 ibid. 198 SUF, P36 L1000-1003. 199 Exh 4, P51 L1411-1413. 200 SUF, P36 L997-998. 201 PO No. 2, P56-57, L1555-1559.
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II. Conclusion
183. Therefore, Respondent urges the Tribunal to find its counterclaim meritorious, and hold that
Claimant has violated its environmental obligations under the BIT.
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PRAYERS FOR RELIEF
1. Declare that this Tribunal lacks jurisdiction over the dispute on the grounds that
Claimant is not an investor and does not have a covered investment under the BIT;
2. Declare that Claimant's requests are not admissible;
3. Declare that Claimant's claims be entirely rejected; and
4. Order Claimant to pay USD 150,000,000 for the damage arising out of its operations
in Kronos.
5. Grant such further relief as counsel may advise and that this Tribunal deems
appropriate.
Respondent submits that the case be quashed and the Claimant be held in violation of said
obligations.
Respectfully Submitted on 24 September 2018
By
Team Cancado
On Behalf of the Republic of Kronos